The directors present the strategic report for the year ended 30 June 2023.
Management continually monitor the key risks facing the group, together with assessing the controls used for managing these risks.
At the reporting date, the group has a current liability of £2,414,536 in favour of Allica Bank Limited. Under the terms of the loan agreement at 30 June 2023, the loan was due for repayment in January 2024, for which existing cash reserves would be insufficient. Post year end, management have entered into a new agreement with the bank, which will see the loan repayment period extended through to 2049. The repayments under the new loan agreement have been factored into the cashflow forecasts, along with all associated covenants. Thus, the Directors continue to adopt the going concern bases in preparing the financial statements.
Events, including the Ukraine conflict, rising energy costs, inflation and difficulties recruiting staff are not considered to be a material risk to the company’s ability to continue trading for at least the next 12 months. The group has entered into a fixed-tariff contract through to 2025 (electric) and 2026 (gas). Therefore, whilst the directors will continue to assess energy price rises and search for mitigations, there is no immediate threat to the business. Recruitment and inflation are being managed through continuous management and review of cost centres and market trends.
Furthermore, the implications of ongoing global events continue to create uncertainty and it is therefore difficult to evaluate the likely effect on the group’s trade, customers, suppliers and the wider economy.
Our assessment at the date of approval of these accounts is that these events do not create a material uncertainty related to going concern. The notes to the financial statements discloses matters of which we are aware that are relevant to the group’s ability to continue as a going concern, including significant conditions and events, our plans for future action, and the feasibility of those plans.
There have not been any significant changes in the group’s principal activities in the year under review, and at the date of this report, the directors are not aware of any likely changes in the group’s activities in the next year.
The KPIs used to determine the progress and performance of the group are set out below:
Turnover
As reported in the group’s statement of comprehensive income on page 8, turnover for the year decreased to £5,040,728 when compared to the year to 30 June 2022 of £5,125,767.
Gross profit margin
The group's operating profit margin in the period under review decreased to 10.5% (2022: 17.9%). This was primarily attributed to reduced room occupancy, and rising fixed costs, not least wages and salaries.
Financial position at the reporting date
The balance sheet shows that the group’s position at the year end with net assets having increased from £3,912,082 in 2022 to £4,147,446 at 30 June 2023.
On behalf of the board
The directors present their annual report and financial statements for the year ended 30 June 2023.
The results for the year are set out on page 7.
No ordinary dividends were paid. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, Azets Audit Services, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
We have audited the financial statements of Scragg Hotels Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 30 June 2023 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.
We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework. Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.
In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:
Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud;
Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection;
Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing operations.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £7,407 (2022 - £929 loss).
Scragg Hotels Limited (the 'company') is a private limited company by shares and incorporated in England and Wales. The registered office and primary place of busines is The Spa Hotel, Langton Road, Tunbridge Wells, Kent, TN4 8XJ.
The group consists of Scragg Hotels Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £1.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit after tax for the year was £7,407 (2022: loss of £929). In addition, as permitted by section 7 'Statement of Cash Flows' (FRS 102) the company has not presented its own statement of cash flows nor related notes and disclosures.
The consolidated financial statements incorporate those of Scragg Hotels Limited and all of its subsidiaries (ie entities that the group controls through its power to govern the financial and operating policies so as to obtain economic benefits).
All financial statements are made up to 30 June 2023. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
In preparing the financial statements, the directors have considered the principal risks and uncertainties facing the business. In making this assessment the directors have prepared cashflow forecasts for the foreseeable future, being a period of at least twelve months from the date of approval of the financial statements.
The group has a loan of £2,414,536 in favour of Allica Bank Limited, which as per the agreement in force at the reporting date, was repayable by January 2024. Existing cash reserves would be insufficient to repay the full loan balance. Post year end, management have entered into a new loan agreement with the bank, which will see the loan repayment period extended through to 2049. The repayments under the new loan agreement have been factored into the group cashflow forecasts, along with all associated covenants.
Having considered numerous different scenarios, the directors consider that the group has adequate resources to continue trading and therefore have a reasonable expectation that the group will continue in operational existence for the foreseeable future. Thus, the Directors continue to adopt the going concern bases in preparing the financial statements.
Turnover represents net invoiced sales of goods and services (being room income, restaurant sales and other usual supplies made by a hotel), excluding value added tax. Turnover is recognised once the performance of the service has been concluded or goods have been delivered.
During the year, management have elected to revise the depreciation policy for certain tangible fixed assets to represent a more realistic expectation of useful economic life. Where applicable, such changes to the accounting policy have been applied prospectively from 1 July 2022, and no adjustment to the brought forward net book value position under the former depreciation policy has been made.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.
No depreciation is charged on freehold land.
Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.
In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in use.
The group has applied the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publically traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and related parties that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Government grants are recognised at the fair value of the asset received or receivable when there is reasonable assurance that the grant conditions will be met and the grants will be received.
A grant that specifies performance conditions is recognised in income when the performance conditions are met. Where a grant does not specify performance conditions it is recognised in income when the proceeds are received or receivable. A grant received before the recognition criteria are satisfied is recognised as a liability.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
In assessing whether there have been any indicators of impairment of assets the directors have considered both external and internal sources of information such as market conditions, counterparty credit ratings and experience of recoverability. There have been no material indicators of impairments identified during the current financial year other than in respect of bad and doubtful trade debtor balances recognised in the financial statements.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The company depreciates tangible fixed assets over their estimated useful lives. The estimation of the useful lives of assets is based on historic performance as well as expectations about future use and therefore requires estimates and assumptions to be applied by management. The actual lives of these assets can vary depending on a variety of factors, including product life cycles and maintenance.
The group's turnover arose wholly within the United Kingdom, principally relating to hotel operations.
An analysis of the group's other significant revenue is as follows:
The group auditor's remuneration is borne by The Spa Hotel (Tunbridge Wells) Limited.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
In addition to the above costs, the cost of agency workers in the period was £20,150 (2022: £72,670).
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2022: 1).
The directors do not consider that there are any other key management personnel besides the directors. As such, the aforementioned directors emoluments are equivalent to key management personnel remuneration.
From 1 April 2023, corporation tax rates increased from 19% to 25% in the United Kingdom. Given the group's financial year straddles two periods where both the former and current rates apply, a hybrid rate of 20.5% is applicable for the current year's tax charge. Deferred tax is calculated by reference to a corporation tax rate of 25% (2022: 25%).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.
There is a legal charge over The Spa Hotel, included within freehold buildings, in favour of the group's finance provider.
Details of the company's subsidiaries at 30 June 2023 are as follows:
The loans from related parties represent loans from the shareholders and are unsecured and interest free. These loans have no fixed terms of repayment.
The bank loan is secured by a first ranking debenture in favour of Allica Bank Limited, incorporating a fixed and floating charge over all the assets (present and future) of the company and its subsidiary and an unlimited guarantee in respect of all monies, debts and liabilities owed supported by a first legal mortgage over the freehold property in the name of The Spa Hotel (Tunbridge Wells) Limited.
Interest is calculated at 2.75% per annum above LIBOR on the principal loan facility of £2,836,123 which is repayable in quarterly instalments of £38,326 plus interest. The term of this loan facility is until 25 January 2024, at which point the remaining outstanding balance is payable. Hence, the full balance is presented as a current liability.
Post year end, management have entered into a new loan agreement with Allica Bank Limited, which will see the loan repayment period extended through to 2049.
The group’s two Coronavirus Business Interruption Loan Scheme (CBILS) have been repaid in full as at the reporting date. Interest was calculated at 3.75% per annum above the bank's base rate.
Finance lease payments represent rentals payable by the company or group for certain items of plant and machinery. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 5 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
Deferred tax assets and liabilities are offset where the group or company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
All of the issued shares rank pari passu other than the right to receive dividends which is determined by the directors for each class.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
At the balance sheet date, the group owed £10,548 (2022: £10,048) to the fund. This amount is included within other creditors due within one year.
The group is party to a cross guarantee in favour of Allica Bank Limited (previously, AIB Group (UK) Plc). The total group borrowings covered by this guarantee amount to £2,414,536 (2022: £2,567,840), which all relate to the company.
In addition, with effect of 22 September 2021, The Spa Hotel (Tunbridge Wells) Limited is subject to a fixed charge in favour of National Westminster Bank Plc, amounting to £7,500, in respect of a change order arrangement.